Begun Construction Provisions

Prior to the modifications that were introduced in 2012, the section 45L taxation credit was available solely for a qualified energy facility placed in service prior to the end of December 2014.

The problem is that energy efficiency projects will quite often require a longer period of time in order to be completed. This is one of the main reasons for the changed conditions that have been included in the American Taxpayer Relief Act of 2012.

The older requirement for facilities that have to be placed in service prior to the end of the term was replaced with a requirement for the construction of the energy efficient building to begin prior to the end of the year. Such constructions can qualify for the taxation incentives provided under section 45L.

Definition of Begun Construction

The next important question that will need to be answered in connection to the 45L credit is what projects correspond to the begun construction requirement. The IRS website is quite helpful in this regard, providing a lot of information about the specifics for begun constructions.

There are two main ways for determining when the construction of the facility has begun. The first is physical work of a significant nature. Physical work of a significant nature is defined as work on the construction that has been started either by the eligible taxpayer or by employees doing work for this person. On-site and off-site work both qualify as physical work of a significant nature.

This category does not include any preliminary work on the building. Design, for example, will not quality the building for the section 45L credit. Research, licensing, obtaining permits, looking for finances and securing will also not qualify.

The second requirement is meeting the safe harbor requirements. Under this requirement, the taxpayer should have incurred five percent or more of the total construction cost prior to December 31, 2014. In addition, IRS has to make sure that the taxpayer is making continuous efforts towards the completion of the project. There may be certain interferences that will be excluded from consideration. Such interferences include:

• Severe weather that stands in the way of safe construction work
• Natural disasters
• Labor stoppages, strikes and other employment-related problems
• Inability to obtain all of the necessary equipment for construction purposes
• Supply shortages
• Financial delays that can reach up to six months
• Delays based on requests from either state or federal agencies

These are the most important criteria that have to be met for begun construction to be considered. The IRS website features additional information about more specific scenarios and how to determine whether these will stand in the way of obtaining the 45L credit.

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Property Requirements

The section 45L credit is available for residential projects executed on the territory of the US. The property should have been completed and occupied prior to December 31, 2014.

The dwelling unit should be located in a building that is at most three-stories high. In other words, the incentive applies to the construction of apartment buildings and residential condominiums or the rehabilitation of older such buildings.

To qualify for a section 45L incentive, the building should have heating and cooling energy consumption that is 50 percent lower than the one of a comparable residential unit. Third party certification will be needed to prove the energy efficiency of the building.

Who can Get the 45L Credit

The eligible contractor is the one that can claim the energy efficiency taxation incentive for 2014.

The contractor is defined either as the individual who constructed the new residential unit or the manufacturer of an energy efficient manufactured home.

Energy Savings

In order to qualify for the taxation incentive, the dwelling unit should have energy consumption that’s 50 percent lower than the requirements listed in the 2006 International Energy Conservation Code.

The 2006 energy conservation code features requirements and prescriptions for both commercial and residential energy-efficient buildings. These focus on roofing materials, floors, fenestration, opportunities for reducing air leakage, HVAC equipment performance and lighting.

If the building is independently certified to correspond to these requirements, the contractor will be eligible for a home tax credit of up to 2,000 dollars.

Qualification and Application Process

If you believe that your 2014 dwelling unit project corresponds to the above mentioned requirements, you’ll need to ask for an independent evaluation and certification. The parties responsible for the process use accredited software to make the energy savings calculations.

The energy features of the dwelling unit will also have to be inspected and assessed on site.

Don’t hesitate to seek certification, especially if you executed a larger project in 2014. Several case studies show that the amount provided under section 45L can be impressive. According to one of the case studies, a contractor that constructed 83 dwelling units (all of which adhering to the energy efficiency requirements) got a tax credit of 166,000 dollars for the entire project. The project certification fee in this case was 36,000 dollars and the net benefit was 144,000 dollars.

An eligible certifier is any licensed third party that has no relationship with the contractor that has been accredited by the Residential Energy Services Network or another rating network of the same caliber.

Getting certified for a 45L credit is far from a challenging task, as long as you find a reliable partner. Many new buildings adhere to the strictest energy efficiency requirements, which qualifies them for an incentive automatically. Get started with the certification right now, if you want to make use of the incentive for your 2014 residential project.

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Photo Credit: iStock Photo

Energy efficient improvement tax credits provide a wonderful stimulus for the execution of sustainability projects. The 45L incentive used to be one such amazing opportunity. This energy efficient building tax credit, however, has expired. The fact makes many people wonder whether they can still claim the credit for projects executed prior to its expiration.

What’s the 45L Energy Tax Incentive?

The energy efficient home credit known as 45L incentive offers an amount of up to 2,000 dollars per building to the developer responsible for a sustainability improvement. The heating and cooling energy consumption of such dwellings should be significantly lower than the national average standard for the credit to be obtained.

Current energy efficiency codes have evolved, which is why many companies meet the requirements without having to put a lot of hard work in sustainable improvements. The rehabilitation of existing residential buildings provides additional chances for claiming the tax incentive.

All construction and rehabilitation work on the project should have been completed before the start of 2014. December 31 2013 marks the expiration of the 45L incentive.

Qualification Requirements

Residential buildings must be three stories above grade or less for the project to be eligible for this kind of funding. The types of energy efficient features that the building should have include:

• Wall and roof insulation, the use of reflective roofing materials
• Double or triple pane windows
• Insulated doors
• Extra-isolated foundation
• Gas furnaces having efficiency of 80 percent plus
• Energy efficient air conditioning systems.

Contractors are eligible for the 45L incentive in the year during which the dwelling was either leased or sold. If a person hired contractors for the execution of such projects, that person is the entity eligible for the 45L incentive.

Can You Still Claim the Energy Efficiency Tax Incentive?

Projects executed in 2014 cannot qualify for the energy efficiency tax credit but how about contractors that haven’t made a claim already? Is it possible to benefit from the opportunity for projects executed during the specified program time frame?

The tax credit expired for the first time in 2011 but it was extended to cover the period until the end of 2013. It impacts all housing projects completed in the period from 2011 to 2013. If a contractor has not claimed the tax credit in the past, it’s possible to claim the 45L incentive right now. A contractor will simply have to file an amended tax return.

Retroactive claiming of the tax credit is possible, so it’s a good idea to figure out whether a project completed between 2011 and 2013 meets all of the qualification criteria.

All homes have to be certified by a third party for the tax credit to be claimed. The third party will be responsible for verifying in writing that the dwellings under consideration have heating and cooling consumption that is 50 percent lower than the average for a comparable residential unit.

It’s possible to still benefit from an energy efficient residential or rehabilitation project that you have executed in the past. More information about the credit and its specifications is available at the IRS website.

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